Stockholders' Equity

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Preferred stock and convertible preferred stock consist of the following:

	December 31,
	2017		2016
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2017 and 2016; no shares issued and outstanding at December 31, 2017 and 2016	$	—	$	—
Series B convertible preferred stock, $0.001 par value, 147,000 shares designated at December 31, 2017 and 2016, and 500 shares issued and outstanding at December 31, 2017 and 2016	1		1
Series D convertible preferred stock, $0.001 par value, 21,300 and zero shares designated at December 31, 2017 and 2016, respectively, 14,052.93 and 17,202.65 shares issued and outstanding at December 31, 2017 and 2016, respectively	14		17
Series E convertible preferred stock, $0.001 par value, 7,000 and zero shares designated at December 31, 2017 and 2016, respectively, and 7,000 and zero shares issued and outstanding at December 31, 2017 and 2016, respectively	7		—
Series F convertible preferred stock, $0.001 par value, 10,621 and zero shares designated at December 31, 2017 and 2016, respectively, and 7,927.05 and zero shares issued and outstanding at December 31, 2017 and 2016, respectively	8		—

Private and Public Offerings of Common Stock and Warrants

2017 activity

In 2017, the Company entered into agreements with respect to a private equity offering (the “Q3 2017 Offering”) with an institutional investor and its affiliates (collectively the “Investor”). In the Q3 2017 Offering, the Company issued 7,000 shares of Series F convertible preferred stock (the “Series F Preferred Stock”) at a price of $1,000 per share. The Q3 2017 Offering also reset the conversion price of 14,052.93 shares of Series D convertible preferred stock and 7,000 shares of Series E convertible preferred stock that were held by the Investor to $2.63 per share. The Q3 2017 Offering resulted in gross proceeds of $7.0 million, and after deducting fees and expenses, net proceeds were $6.6 million. In the third quarter of 2017, the Company also entered into an exchange agreement pursuant to which it issued the Investor 3,621 shares of Series F Preferred Stock in exchange for the repurchase and retirement of 4,184,483 warrants to purchase common stock valued by an independent party at $3,622,219.

Also in 2017, the Company completed a private equity offering (the “Q1 2017 Offering”) with the Investor and issued (i) 7,000 shares of Series E convertible preferred stock (the “Series E Preferred Stock”) at a price of $1,000 per share, and (ii) warrants to purchase up to 1,250,000 shares of common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $5.60 per share. As a part of this offering, the Company reset (i) the conversion price of 19,458.90 shares of Series D convertible preferred stock that were held by the Investor to $5.60 per share, and (ii) the exercise price of warrants to purchase up to 2,934,484 shares of Common Stock that were held by the Investor to $5.60 per share. The Q1 2017 Offering resulted in gross proceeds of 7.0 million, and after deducting fees and expenses, net proceeds were $6.3 million.

Each share of Series D Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock (collectively the "Preferred Stock") have a stated value of $1,000 and is convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value by the conversion price of $2.63, which is subject to adjustment as provided in the Certificate of Designation for the Preferred Stock. The Preferred Stock has no dividend rights, liquidation preference or other preferences over Common Stock and has no voting rights except as provided in the Certificate of Designation for the Preferred Stock and as required by law.

The Q3 2017 Offering and the Q1 2017 Offering were accounted for as extinguishments of the Investor’s equity holdings in recognition of the revisions of certain preexisting equity instruments and the significant transfer of value in excess of the funding received by the Company. Under the extinguishment model, a deemed dividend was recognized within additional paid in capital which represented the fair value of issued Preferred Stock plus the incremental fair value of repricing the Preferred Stock held by the Investor, less the fair value of the consideration transferred, less the carrying value of the outstanding Preferred Stock, and warrants to purchase Common Stock. The amount of the deemed dividend totaled $2.8 million and $4.0 million for the Q3 2017 Offering and the Q1 2017 Offering, respectively.

The Company determined that equity classification was appropriate for the warrants issued in the Q1 2017 Offering, following guidance in the Derivatives and Hedging topic of the Codification. In making this equity classification determination, the Company noted the warrants may only be settled in shares of common stock and had no requirements to be settled in registered shares when exercised. The fair value of the five year warrants was estimated to be $3.5 million on the offering date using a Black-Scholes model with the following assumptions: stock price of $4.96, exercise price of $5.60, expected volatility of 70.2%, risk free interest rate of 2.04%, expected term of five years, and no dividends.

During 2017, 3,149.72 shares of the Series D Preferred Stock were converted into a total of 859,077 shares of common stock. As of December 31, 2017, 14,052.93 shares of Series D Preferred Stock remained outstanding. During 2017, 2,693.95 shares of the Series F Preferred Stock were converted into a total of 974,163 shares of common stock. As of December 31, 2017, 7,927.05 shares of Series F Preferred Stock remained outstanding.

2016 activity

In June 2016, the Company completed a private equity offering with one institutional investor (the “Investor”) and issued (i) 21,300 shares of Series D convertible preferred stock (the “Series D Preferred Stock”) at a price of $1,000 per share, and (ii) warrants to purchase up to 1,475,069 shares of common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $13.52 per share (the “June 2016 Offering”). As a part of this offering, the Company redeemed 13,800 shares of Series C convertible preferred stock (the “Series C Preferred Stock”) issued in the December 2015 Offering that were held by the Investor. Accordingly, the June 2016 Offering resulted in gross proceeds of $7.5 million, and after deducting fees and expenses, net proceeds were $6.7 million.

Each share of Series D Preferred Stock had a stated value of $1,000 and is convertible at the option of the holder into the number of shares of common stock determined by dividing the stated value by the conversion price of $14.44, which is subject to adjustment as provided in the Certificate of Designation for the Series D Preferred Stock. The Series D Preferred Stock has no dividend rights, liquidation preference or other preferences over common stock and has no voting rights except as provided in the Certificate of Designation for the Series D Preferred Stock and as required by law.

The June 2016 Offering was accounted for as a modification of the Investor’s Series C Preferred Stock. Under the modification model, a deemed dividend was recognized within retained earnings which represented the fair value of consideration transferred plus the fair value of repurchased Series C Preferred Stock, less the fair value of the newly issued Series D Preferred Stock and warrants. The amount of the deemed dividend totaled $19.8 million.

The Company determined that equity classification was appropriate for the warrants in the June 2016, following guidance in the Derivatives and Hedging topic of the Codification. In making this equity classification determination, the Company noted the warrants had no requirements to be settled in registered shares when exercised. The fair value of the 5 year warrants issued in connection with the June 2016 Offering was estimated to be $14.6 million on the offering date using date using a Black-Scholes model with the following assumptions: stock price of $15.92, exercise price of $13.52, expected volatility of 71.50%, risk free interest rate of 1.23%, expected term of five years, and no dividends.

During 2016, 4,097.35 shares of the Series D Preferred Stock were converted into a total of 283,750 shares of common stock and 6,646 shares of the Series B Preferred Stock were converted into a total of 20,561 shares of common stock.

Other equity activity

In 2017, the Company issued 24,380 shares of fully vested common stock in exchange for 201,327 equity-classified warrants. The fair value of the warrants was estimated to be $45,102 on the exchange date using date using a Black-Scholes model with the following assumptions: stock price of $1.85, exercise price of $15.19, expected volatility of 70.0%, risk free interest rate of 2.0%, expected term of 3.8 years, and no dividends.

In 2016, the Company issued shares of fully vested common stock in partial settlement of management incentive compensation. The 2016 issuance totaled 22,260 shares with a value of $318,761 reflecting the $14.32 closing price of the Company’s common stock as reported on the Nasdaq Capital Market on March 9, 2016.

As of December 31, 2017, the Company had 100,000,000 shares of common stock authorized and 2,706,066 shares issued and outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends unless declared by the Board of Directors.

At December 31, 2017, the Company has reserved authorized shares of common stock for future issuance as follows:

Warrants	459,375
Outstanding stock options	80,537
Possible future issuance under inducement plan	12,500
Possible future issuance under stock option plans	618,247
Possible future issuance under employee stock purchase plan	58
Total	1,170,717

Reverse Stock Split

On May 11, 2017, the Company effected a 1-for-8 reverse stock split of its Common Stock, or the Reverse Stock Split. The par value and other terms of the common stock were not affected by the Reverse Stock Split. The Company’s shares outstanding immediately prior to the split totaled 10,147,721, which were subsequently adjusted to 1,268,440 shares outstanding. Share, per share, and stock option amounts for all periods presented within the financial statements contained in the Annual Report on Form 10-K have been retroactively adjusted to reflect the Reverse Stock Split.